In this blog, VAT Director Iain Masterton looks at the history of the tax treatment of newspapers and books and how VAT legislation hasn’t moved with the times.
A recent VAT case has highlighted how VAT legislation drafted in the 1970s and 1990s has not easily translated into the modern age.
VAT zero rating is available for the supply of “printed matter” which includes newspapers, books and magazines. Critically the legislation describes these items as “goods”.
News Corp, the company who own the Times and Sunday Times, tried to argue at the VAT Tribunal digital versions of their newspaper should qualify for the same VAT treatment as its printed counterparts.
The decision in the case revealed the fascinating history of the tax treatment of newspapers and books going back to 1940 when the VAT treatment of these items was exempt under the then named ‘purchase tax.’ This was replaced in 1973 by VAT as the UK joined what is now the EU.
The Tribunal conceded that the digital version of The Times was 95% similar to the paper version of the newspaper and despite the fact that the digital version of the paper was issued periodically under the same title and contained current affairs news, the VAT Tribunal could not look past the fact that the zero-rating provisions for printed matter refers to goods, not services.
The Tribunal also noted that zero rating provisions needed to have a social component and when Parliament originally decided to zero rate newspapers, the purpose of this was to increase literacy amongst the population and to encourage debate. Despite this “purposive” construction, the Tribunal could not look beyond what Parliament originally intended and drafted in the legislation. As a result, the legislation considers digital newspapers to be more suitable to a supply of services than of goods.
Clearly there is a huge change in how the UK public read newspapers, magazines and books in 2018 compared to the 1970s and 1990s when the last version of the VAT Act was drafted. The zero rating provisions which were introduced with VAT cannot be revised at present. They can only be removed.
With the UK’s impending move away from the EU there may be scope for the UK Government to change this in the future, however it would have to consider the amount of revenue it could potentially lose from removing VAT from all online publications.
If you have a query about VAT, please contact Iain.Masterton@chiene.co.uk or call 0131 558 5800.